Abhinav Cooperative Group ... vs Uppal Engineeering Company Pvt. ...
2014 Latest Caselaw 2762 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Order delivered on: May 28, 2014


+      EX.P. 74/2010 & E.A. (OS) No. 85/2014, E.A.(OS) No.164/2014
       ABHINAV COOPERATIVE GROUP HOUSING SOCIETY LTD
                                              ..... Decree Holder
                   Through  Mr.Sanjoy Ghose, Adv. with
                            Mr. Mohd. Farrukh, Adv.

                          versus

       UPPAL ENGINEERING COMPANY PVT LTD
                                                       ..... Judgment Debtor
                          Through      Mr.M.S.Vinaik, Adv. for JD.
                                       Mr.Deepak Bashta, Adv.

       CORAM:
       HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J. (Oral)

1. The present execution petition has been filed by the decree holder under Order 21 Rule 10 of the Code of Civil Procedure praying that warrants of attachment and sale thereafter of the movable and immovable properties of the judgment debtor be issued in respect of the list of properties filed along with execution petition.

2. The brief facts are that the award was passed against the judgment debtor on 30th June, 2005. The judgment debtor filed OMP No. 415/2005 in this Court under Section 34 of the Arbitration and Conciliation, Act, 1996 (hereinafter referred to as "the Act") which was dismissed by a detailed judgment dated 3rd July, 2008. Against the dismissal of the said petition, the judgment debtor filed an appeal being FAO (OS) No. 391/2008 which was also dismissed by the Division Bench of this Court on 6th February, 2009.

The Special Leave to defend Petition (Civil) No. 20181 of 2009 filed by the judgment debtor was also dismissed by the Supreme Court on 26 th April, 2010. The award is enforceable as decree under Section 36 of the Act.

3. When the execution was listed on 18th January, 2012, learned counsel appearing on behalf of the decree holder informed the Court that immovable property at Plot No.1016, Sector 4, Gurgaon, which was in the name of the judgment debtor has been transferred to M/s M.S.S. Constructions Pvt. Ltd. whose director is Sanjeev Uppal, brother of Mr.Deepak Uppal, after passing the award by the Arbitrator on 30th June, 2005, with a view to defeat the execution. The judgment debtor on that date was directed to file an affidavit with regard to the said transfer of plot. Mr.Deepak Uppal filed the affidavit dated 23rd March, 2012 admitting that the plot in question was sold to M/s M.S.S. Construction Pvt. Ltd. and the sale proceeds were deposited directly with the bank towards the part liquidation of the liability of the company. The bank in return released/handed over the property documents/papers of the said immovable property to Sh.Sanjeev Uppal, the Managing Director of M.S.S. Construction Pvt. Ltd.

4. The decree holder filed an application, being E.A. (OS) No.740/2012, for impleadment of Mr.Sanjeev Uppal. The Court issued the notice to M.S.S. Construction Pvt. Ltd. through its Director Mr.Sanjeev Uppal, 1016, Sector-4, Gurgaon, Haryana. On that date, Mr.Vinaik appeared on behalf of Uppal Engineering Company Pvt. Ltd. with Mr.Ritesh Khatri, Advocate. However, on the next date i.e. 2nd April, 2013, the same Ritesh Khatri, Adv. appeared on behalf of Mr.Sanjeev Uppal also. On 1 st November, 2013, both the parties agreed before Court that they are willing to attempt a settlement before the Delhi High Court Mediation and Conciliation Centre. After few meetings, the Mediation Centre filed a settlement agreement dated 17 th

December, 2013 which is signed by both the parties. Mr.Deepak Uppal signed on behalf of the judgment debtor as well second party.

5. The terms and conditions of the settlement are mentioned in para 7 of the settlement agreement which reads as under:

"7. The following settlement has been arrived at between the parties hereto: -

i) That the parties have agreed that the Second Party shall pay a total sum of Rs. 1,10,00,000/- (Rupees One Crore and Ten Lacs only) towards the full and final settlement of all the claims and demands of the First Party against the Second Party arising out of the dispute in question. The said settlement amount shall be given by second party to the first party in the following manner:-

i) It is undertaken by the Second Party that he shall pay Rs.

20,00,000/- (Rupees Twenty Lacs Only) by Bank Draft drawn in faovur of Abhinav Cooperative Group Housing Soceity Ltd. to the first party by 15th March, 2014.

ii) It is also undertaken by the Second Party that balance amount of Rs. 90,00,000/- (Rupees Ninety Lacs Only) shall be paid by second party to first party in 12 equal monthly installments of Rs. 7,50,000/- (Rupees Seven Lacs Fifty Thousand only) each. It is agreed by the parties that the first installment shall commence from April 2014 and each installment shall be paid by second party to first party on or before 15 th of each calendar month. It is also agreed by the second party that all the installments shall be paid by it to the first party by Bank Draft drawn in faovur of Abhinav Cooperative Group Housing Society Ltd. It is undertaken by the second party that the total settlement amount of Rs. 1,10,00,000/- (Rupees One Crore Ten Lakhs Only) shall be paid by 15 th March, 2015.

iii) It is agreed that after receiving the payment of above said Rs. 1,10,00,000/- (Rupees One Crore and Ten Lacs only) from the Second Party, the First Party will withdraw the present petition after 15th March, 2015."

6. The judgment debtor despite of settlement did not pay any amount to the decree holder. Rather an application was filed by the judgment debtor being, E.A. (OS) No.85/2014, on 27th January, 2014. The main contents of the said application are that the judgment debtor though acknowledges a strong public policy favouring settlement but settlement agreement could not be meted as per the terms that were jotted down. The judgment debtor orally suggested that the payment time may be extended dividing the amount in 18 to 21 equal installments, whereby the amount of Rs. 110 Lac could be paid in 20 installments of Rs. 5,50,000/- lac each as there was no meeting of minds of the directors of the judgment debtor company at the time of settlement and they feel that it will not be possible to arrange these funds by sale of machinery at such short notice. They disagreed with the stand taken by the Managing Director of the judgment debtor before the mediation centre. It was stated that the Managing Director personally feels that the efforts made in mediation should not go waste and thus approached the board again with a request to comply the terms of settlement agreement or suggest an alternate. The board of directors were of the view that in case the terms of the settlement agreement are modified regarding time and equal installments, they would be in a position to approve the same. Further, they never appeared before the mediation and it was the Managing Director only, who participated in all the hearings of mediation. No prejudice shall be caused to the decree holder in case the settlement agreement be amended /modified by the intervention of this Court under inherent powers or in alternate be permitted to be withdrawn and Executing Court may continue with the matter for the just and legitimate expectations of the matter.

In alternate course, the Court may once again remand the matter for the fresh mediation on the cost of judgment debtor, which shall with all due

authorizations proceed for some results, so that the settlement arrived at by and between the parties may hold the water and bear the seal of the company. Even the majority's result (out of the directors) in judgment debtor company could permit the settlement agreement not to be derailed. The judgment debtor is still continuing to grapple with enforcement of the said agreement, which in all positive endeavours would not be possible to be achieved. Even otherwise a conjoint reading of the Mediation & Conciliation Rules 2004 would require a decree is deserved to be drawn in case of settlement attaining finality or backed out. In present case, the execution is already for the arbitration award, and the parties may be relegated to pursue mediation for the logical conclusion of the execution proceedings.

7. The decree holder on 24th February, 2014 has also filed an application, being E.A. (OS) No.164/2014, under Section 151 CPC for preponement of hearing and prevail upon the judgment debtor to agree to the modified terms of the settlement as per para 3 of the application filed by the judgment debtor.

8. The learned Mediator held several marathon sessions of the mediation and the judgment debtor represented by Mr. Deepak Uppal, Managing Director of the judgment debtor, sought time to revert to the proposal of the decree holder on the ground that he wishes to take instructions from other directors of the company. The Managing Director of the judgment debtor after having apprised the learned Mediator that he has taken the instructions from the other Directors of the company, entered into a settlement vide which judgment debtor has agreed to pay a total sum of Rs. 1,10,00,000/- (Rupees One Crore Ten Lacs Only) towards the full and final settlement of

all claims and demands of decree holder. It was further agreed by Mr.Uppal, representing the judgment debtor that he wishes to pay Rs.20,00,000/- (Rupees Twenty Lacs Only) by a bank draft drawn in favour of decree holder by 15th March, 2014 and the balance amount of Rs. 90,00,000/- (Rupees Ninety Lacs Only) shall be paid by him in 12 equal monthly installments of Rs. 7,50,000/- (Rupees Seven Lacs Fifty Thousand only) each.

9. The aforesaid settlement was entered into on 17th December, 2013 and was duly singed by Mr. Deepak Uppal, representing the judgment debtor.

10. It appears from the application filed by the judgment debtor that the judgment debtor is seeking the declaration that mediation conducted in Delhi High Court Mediation and Conciliation Centre be declared as void and in alternative the settlement agreement arrived be Mediation Centre be modified as Mr.Deepak Uppal, representing the judgment debtor, is withdrawing his consent.

11. From the entire gamut of the matter, this Court is surprised how Mr.Deepak Uppal with malafide intentions and motive can withdraw his consent in the compromise arrived at between the parties before the Mediation Centre. Mr.Deepak Uppal never disclosed the names of the other Directors of the company and the company is a close family held company. The similar is the position of company namely M.S.S. Construction Pvt. Ltd. in which his brother Sanjeev Uppal is the Director. There are various decisions given by this Court in several cases wherein it has upheld the sanctity of the mediation settlement and the Courts did not allow the parties to back track from the terms and conditions of the settlement on the ground that in case the same is allowed, it will negate the aims and objective of the mediation and defeat the whole process of mediation. In the present case,

still the decree holder was very liberal to accept the payment from the judgment debtor in 20 installments @ Rs.5,50,000/- per month. However, the judgment debtor during the course of hearing has refused to liquidate the amount in this manner also.

12. The statement made by the judgment debtor in his application, being E.A. (OS) No.85/2014, and the language used amounts to contempt. In a way, in the said application, the judgment debtor is giving the suggestion to the Court to pass orders in particular manner as per its choice and time and giving various alternatives to make the orders in his fashion. The said practice can never be promoted by any Court. The application is totally misconceived. The same is dismissed with costs of Rs.10,000/- to be deposited with Delhi High Court Advocates Welfare Fund by 2nd July, 2014.

13. It is settled law that order of the Court should be obeyed by the parties and wilful disobedience of an order of the Court is punishable as a contempt of court. In the present case, from time to time the Court has adopted all the modes to get the decretal amount in favour of the decree holder. However, the judgment debtor is bend upon not to make the payment and making all clever attempts to avoid the same. As a matter of fact, after signing the settlement agreement before the mediation centre, it is a breach of undertaking and statement made by the director of the judgment debtor. It is the duty of the Court, as a policy, to set the wrong right and not allow the perpetuation of the wrong-doing. The judgment debtor in the present case under no circumstances can be allowed to play the tactics with the Court. In case the judgment debtor, who is in connivance with its related company, is allowed to go escape free from its obligations and liabilities, then the faith of poor litigants, who used to settle their disputes before Mediation Centre, would be lost.

14. It is not in dispute that the judgment debtor has transferred Plot No.1016, Sector-4, Gurgaon, Haryana, which was in the name of the judgment debtor to M.S.S. Construction Pvt. Ltd. The director of the same is Sanjeev Uppal. Mr.Deepak Uppal, who is the brother of Mr.Sanjeev Uppal, signed the settlement before the mediation centre. There is no specific denial on the part of the judgment debtor or Mr.Sanjeev Uppal who appeared through junior advocate, who was earlier appearing on behalf of Mr.Deepak Uppal, to the statement made by the learned counsel for the decree holder that the said transfer was effected after the award was made by the arbitrator on 30th June, 2005 and it was done deliberately with a view to defeat the execution. It is evident from the same that it is a clear case of lifting of corporate veil.

15. In the case of Delhi Development Authority vs. Skipper Construction Co. (P) Ltd. and Another, reported in (1996) 4 Supreme Court Cases 622, the Supreme Court has discussed the issue of lifting of corporate veil. The relevant paras are extracted as under: -

"In Aron Salomon v. Salomon & Company Limited (1897) AC 22, the House of Lords had observed, "the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act". Since then, however, the Courts have come to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". (Gower : Modern Company Law - 4th Edn. (1979) at P. 137). Pennington (Company Law - 5th Edn. 1985 at P. 53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed

by the law", the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article "From Peeping Behind the Corporate Veil, to Ignoring it Completely" says "the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". [(1990) 53 MLR 338]. Indeed, as far back 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" (published in (1912) 12 CLR 496) and summarised their central holding in the following words :

The various classes of cases where the concept of corporate entity should be ignored and and veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down ? The nearest approximation to generalization which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and- doing, men and women shareholders, and will do justice between real persons.

25. In Palmer's Company Law, this topic is discussed in Part-II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs : "The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company". Similar

views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer.

26. The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar MANU/SC/0036/1964 : [1964] 6 SCR

885. The following passage from the decision is apposite :

Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation.

27. In DHN Food Distributors Ltd. and Ors. v. London Borough of Tower Hamlets (1976) 3 All. E.R. 462, the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "therein-one" - and, alternatively, as "one- in-three".

28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one

entity belonging to and controlled by Tejwant Singh and Family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people.

16. When the matter is listed today, again an option is given to the learned counsel for the judgment debtor that let entire amount, as agreed before the mediation centre be paid by the judgment debtor in 20 installments in view of the statement made by the learned counsel for the decree holder to accept the same on the basis of the specific statement by the judgment debtor in E.A. (OS) No.85/2014, which was filed after settlement, be paid. There is no response either from the judgment debtor who appeared in Court or from the counsel. In view of unreasonable conduct of the judgment debtor, the prayer made in the application filed by the decree holder to implead Mr.Sanjeev Uppal is allowed.

17. Therefore, in the light of the abovesaid reason, I am of the considered view that one final opportunity is granted to the judgment debtor to pay the entire amount as per the settlement dated 17th December, 2013 within a period of four weeks from today. In case the judgment debtor fails to pay the said amount, all the Directors/Managing Directors shall file the affidavit disclosing their personal assets movable and immovable along with statement of all bank accounts/FDRs in their names for the last ten years. It is also directed that they shall not disposed of any personal assets including movable and immovable without the permission of the Court and all personal bank accounts either in the name of judgment debtor or its Director(s) stand attached. They shall remain present before the Court on the next date. They shall also produce all the requisite documents and

details with regard to transfer of titles in the name of M.S.S. Construction Pvt. Ltd. and other transaction done by them after passing of the award.

18. Mr.Sanjeev Uppal, the Director of M.S.S. Construction Pvt. Ltd. shall also remain present on the next date. Till the next date, M/s. M.S.S. Construction Pvt. Ltd. shall maintain the status quo and shall not create third party interest in respect of property i.e. Plot No.1016, Sector 4, Gurgaon, Haryana.

19. List on 1st August, 2014 for further directions.

20. Copy of judgment be given dasti to the parties under the signatures of the Private Secretary.

(MANMOHAN SINGH) JUDGE MAY 28, 2014